Fantasy sports faces legal woes in more states
SEATTLE — The New York attorney general’s decision that daily fantasy sports betting sites FanDuel and DraftKings are illegal gambling operations in his state is a blow to the companies, but the multibillion-dollar industry could have more legal headaches yet to come.
The sponsor of a Pennsylvania bill to limit daily fantasy sports betting to the state’s licensed casinos says it could be bolstered by more stringent action in other states.
Rep. George Dunbar commented Wednesday on New York Attorney General Eric Schneiderman’s order that the two major companies, FanDuel and Draft Kings, stop accepting bets in the state because they amount to illegal gambling. Last month, Nevada regulators ordered the sites shut down because they lacked gambling licenses.
FanDuel and DraftKings say their games are legal because they’re based on skill, not chance.
Dunbar, a Westmoreland County Republican, says potential additional state bans against daily fantasy sports may make his bill more palatable to the industry. He says he’s not out to stop them from operating, but to protect consumers.
While the sites have opted not to do business in a handful of states, including Washington, where regulators have made clear they’re not welcome, they have been up and running in a number of others — like New York — where they’re legally dubious. Several states in which the companies are operating have laws similar to New York and Washington, while a few, such as Tennessee, Arkansas and Vermont, have even stricter prohibitions.
That could pose more risk than the companies or their backers — big media companies and professional sports leagues — have let on. Federal law criminalizes gambling businesses that operate in violation of state law, with penalties that can include prison time, fines and seizure of assets.
“This creates a real vulnerability for the industry,” said Daniel Wallach, a sports and gaming lawyer in Florida. “That statute gives the government the power to take it all away. They can shut you down.”
He said daily fantasy sports sites have been operating on shaky legal ground in about a dozen states.
In New York, Schneiderman said DraftKings and FanDuel were offering contests of chance — illegal gambling under state law — and he accused the companies of misleading customers about their chances of winning in a barrage of advertisements. The companies said Wednesday they intend to fight to remain in New York, in court if necessary.
While supporters have pointed to an exemption Congress carved out for fantasy sports in the 2006 Unlawful Internet Gambling Enforcement Act, that legislation did not override state gambling prohibitions or other federal statutes, including the Illegal Gambling Business Act. That law makes it federally illegal to run a gambling business that operates in violation of state law. Whoever conducts, finances, manages, owns or partly owns such a business can be fined or imprisoned for up to five years.
Most states have no laws that specifically address fantasy sports but do have gambling laws that might dictate whether they’re legal. Many permit betting on contests that depend more on skill than chance. Others, like New York and Washington, ban betting on games materially affected by chance, and still others prohibit betting if chance is a factor at all, no matter how minor. In Florida and Arizona, it’s illegal to wager on contests of chance or skill.
